How to Succeed with Penny Stock Investments

Penny stocks can be a great investment, just like any other kind of stock. However, they are quite difficult to get right, particularly if you don’t have a lot of experience in the market. Though penny stocks might be cheap to purchase, they’re subject to a lot of different manipulations, which means that you can lose and gain money on your investment in a very short amount of time. You need your wits about you if you want to invest in this side of the market. To help you get the most out of your money, here are some tips on how to succeed with penny stocks.

Start Small with Penny Stocks

The first thing you need to know is that penny stocks are any stocks available under a certain price level within the stock exchanges. These stocks are often highly volatile, and definitions can vary between stocks under $1 and stocks under $5. While a low price doesn’t necessarily mean that your stocks aren’t worth anything, it’s important to be cautious with your choices. That’s why so many people narrow down their investments using a screener like the Finviz Screener. A screener allows you to filter your choices according to things like volume, or trading price. Once you’ve narrowed your options, remember that if you’re going to buy penny stocks, you should always start small and build up slowly. Put less than 10% of your holdings into this area until you understand it better.

Beware the Scams and Do Your Research

Although you can find penny stocks in the major exchanges, most of them exist on over-the-counter exchanges instead, which means that you’re more likely to fall victim to scams when you trade in these stocks. Outside of big exchanges, most trading companies don’t have strict requirements for what companies need to report, which means that you can be trading with limited information. With such an absence of facts out there when it comes to penny stocks, it’s important to put extra time and effort into doing your research. In other words, this means reading up on any financial findings you can find about the company. If you can’t find financial statements, take this as a red flag. Additionally, try not to pay too much attention to rumors, as they’re often spread by the company looking for buyers.

Always Check the Volume

Finally, when you’re investing in penny stocks, remember that liquidity is key. You won’t be able to see any profits from your investments until you’ve closed your position. If you’ve got a stock that’s soaring but you can’t sell what you’re holding onto, then you won’t be able to win anything. Make sure that you look for daily trading volume before you get involved with any position. The higher the trading volume per day is for your chosen stock, the easier it should be for you to sell. If the stock trades around 500 shares a day, and you own five thousand, then it would take you ten days to get rid of all of your stocks – and that’s if no-one else was selling at the same time. Low volume could mean you end up locked in a bad position.